4 comments:

I agree with Costa and I tried to post this comment, but for some reason the Aus website don't work for me.

"Greed: "An excessive desire to acquire or possess more than what one needs or deserves."

Notice the implicit feudalism? Unlike feudal society where one stayed where one was born - either peasant or aristocrat, with different deserts and hence different 'needs' - in modern society (since the Reformation began to set us free from feudal bonds) the harder one works the higher the standard of living one provides for one's family and others. Acquisition is therefore altruistic. 'Greed' is a medieval myth.

But herd behaviour persists, as you point out. The lizard-mind of the herd is always a peasant mind, ruled by guilt and paranoia. Thus it is easy for demagogic politicians to convince the masses that any of the 7 deadly sins are causing national problems. ('Waste' causes 'climate change' doncha know?)

Michael, how can we have a modern world, populated in the main by ignorant superstitious paranoid peasants pulling it back into the dark ages? Something's got to give."

A bit harsh on the masses, but someone's got to say it.

Costa says elsewhere that his problem with his own parents is their peasant-ignorance.

Well I read Costa’s article and while I’ve no doubt he is correct in his assessment of Rudd, he is a little less than frank about the origins of the financial mess.

It started first in the US with mandated lending to people who otherwise would not receive loans, pushed along beautifully by Fannie Mae and Freddie Mac with the whole thing exacerbated by Mark to Market valuation rules.

The whole thing is a result of government regulation. Although Costa calls it government regulation failure, and perhaps strictly speaking he is correct, it should more correctly be called failure of the regulators. All that the banks and lending institutions around the world have been doing is following the rules.

The big danger here is that regulators will introduce regulations that will make matters worse.

There is more I should add:

It’s weird that the Republicans seem to be getting a caning over the US economy because the seeds of the problems that the whole world now sees were planted by the Democrats. From what I have read, attempts by Republicans to address the issues over the last few years were rejected by the Democrats.

There will be a certain irony if Obama wins the US Presidency because as a socialist Democrat he will be presiding over a financial mess largely of the making of his own party. Mind you with events like these, there would be not too many popular politicians.

And here’s an interesting link to a story on Eureferendum on the financial crisis with appropriate comments about the continued push by the Environmentalists for an Emissions Trading Scheme. My that sounds familiar!

Actually the Eureferendum blog has some good stories about regulators and their failings as well as the failings of the EU(SSR).

Wand, I didn't see that Costa was talking about banks at all, except in warning Rudd not to act so hastily to regulate them. What to speak of regulation, Costa is saying he's against all forms of protectionism, and that Rudd is in danger of taking us backwards to discredited WWII 'Old Labor' socialist ideas.

What Costa is mostly talking about is monetary policy.

http://en.wikipedia.org/wiki/Monetary_policy

Maybe a crude analogy is that banks are like plumbing pipes, while money is the water supply. The pipes burst because they are weak, but maybe there was too high water pressure - too much flow of water (money) in the system.

So, sure the weakness of the particular pipes which burst should have been monitored and the stupid bureaucracy which put the wrong pipes should be shut down and the system managed by competitive private individuals. But overpowering the whole system with too much water is also a cause, perhaps a more fundamental and systemic one.

Ultimately the govt does control the supply of money, in various ways direct and indirect: actual paper and coin, interest rates, bonds, inflation targeting. I take Costa to be talking of systemic 'failure' in those areas. And apparently his stance is 'Austrian', which includes Friedrich Hayek, so I don't think you or I would have any conflict with that.

Up to that point I can understand these issues, but it goes over my head after that.

There is a short term view, which you have described, and a long term view, where Hayek's Austrians have a lot to say about monetary policy. Here's a bit that makes sense to me:

"The Austrian Business Cycle Theory also predicts that the imposition of artificially low interest rates, and the resulting increase in the supply of fiat credit, generates price inflation, which obliges the central bank to increase the supply of credit yet further to maintain the artificially low interest rate, thus prolonging the "boom" and worsening the inevitable "correction." In Austrian theory, depressions and recessions are positive forces in-so-much that they are the market's natural mechanism of undoing the misallocation of resources present during the “boom” or inflationary phase. Austrian School economists point to the dot-com investment frenzy as a modern example of artificially abundant credit subsidizing unsustainable overinvestment."

"Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken. Caveat emptor."

Business Week, 2004.

http://www.businessweek.com/magazine/content/04_29/b3892064_mz011.htm

It seems that allowing interest rates to find higher real market levels commensurate with actual risk was what should have happened all along. Then there would be no crisis. Now I would call such a policy 'deregulation'.